HomeMy WebLinkAbout33-City Administrator
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RESERVE SEWER CAPACITY RIGHTS REPORT
Sold - through 4/30/85
Sold - Silverwood & Co.
Sold - Bryce Parker, Inc.
Sold - Gary & Sharon Smith
Sold - Andrew Barmakian
Sold - J. R. Davis
Sold - E. M. Carlson
Sold - Tioga Development
Sold - Frank povelko
Adj. (does not need) Devonshire Corp.
Sold - Don Kaplan
7/01/85 NEW PRICE
JANUARY 6, 1986
7/05/85 Sold - M. Gurule
7/18/85 Sold - Laird Property
9/ 4/85 Sold - D. J. Russo
9/ 5/85 Sold - Herkelrath Mobile Estates
9/14/85 Sold - M. Alizadeh & D. Finn
9/ 5/85 Sold - Century Homes
9/12/85 Sold - "E" St. Apt. Project
9/23/85 Sold - Prof. M. Rezai
11/13/85 Sold - phil Ward
12/02/85 Sold - Acacia
12/18/85 Sold - William Lyon Co.
Adjust Devonshire (does not need)
Inquiries - awaiting applications
Potential Density Bonus
Inquiries - no applications (over 90 days old)
12/31/85 Drop from files-old inactive
RDA (800)
LOMA LINDA (900)
EAST VALLEY WATER DISTRICT (800)
SEWER
CAPACr!'Y
RIGHTS
$
BALANCE
LEFT
.,.------..-.-------------------------------------------------------------.-----
5/13/85
5/14/85
5/15/85
5/15/85
5/22/85
6/20/85
6/20/85
6/27/85
7/01/85
7/01/85
232.9
172.5
.2
1.0
38.25
22.5
1.0
1.0
28.5
<30. )
88.5
1,267.01
1,094.51
1,094.31
1,093.31
1,055.06
1,032.56
1,031.56
1,030.56
1,032.06
1,060.56
943.56
1.0
9.0
25.5
3.56
45.0
40.0
13.5
.085
1.0
296.0
40.0
(80)
207.5
625
520.75
942.56
933.56
908.06
904.5
859.5
819.5
806.0
805.91
804.91
508.91
468.91
548.91
341.41
(283.59
(804.34
884
TOTAL
ISSUED
BALANCE
172.73
-4-
627.27
896
426.69 373.31
Prepared December 23, 1985
33 b,
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Greyhound Lines, Inc.
Greyhound Tower Phoenix, Arizona 85077
Phone: (602) 248-5000
December 6, 1985
NOT ICE
------
By application No. 85-12-008, filed December 4, 1985, with
the California Public Utilities Commission, Greyhound Lines, Inc.
requested approval to increase its passenger bus fares.
Applicant estimates that a 13% increase in passenger bus
fares is required to offset increased operating expenses and
provide for a more reasonable rate of return.
This Notice is provided by Greyhound Lines, Inc., pursuant to
Rule 24 of the California Public Utilities Commission's Rules of
Practice and Procedures.
A copy of Application No. 85-12~008 is available upon request
from: R. L. Wilson, Vice President-Traffic at the above address.
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Decision 85-12-081
December 18, 1985
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BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
)
)
)
)
)
)
)
Investigation on the Commission's )
own motion into the rates, tolls, )
rules, charges, operations, costs, )
separations, practices, contracts, )
service, and facilities of GENERAL )
TELEPHONE COMPANY OF CALIFORNIA, )
a California corporation; and of )
THE PACIFIC TELEPHONE AND TELEGRAPH )
COMPANY, a California corporation; )
and of all the telephone corporations )
listed in Appendix A, attached hereto. )
)
Application of General Telephone
Company of California, a corpora-
tion for authority to increase
certain intrastate rates and
charges for telephone service.
Application 83-07-02
(Filed July 1, 1983)
OII 83-08-02
(Filed August 3, 1983)
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(See Decision 85-03-042 for appearances.)
Additional Appearances
Ann C. Pongracz and Mark A. FlaRel, Attorneys at Law,
for GTE Sprint; and James K. Hann, Los Angeles City
Attorney, Edward J. Perez, Deputy City Attorney,
and Manuel Kroman, for the City of Los Angeles;
interested parties.
Timothv E. Treacy, Attorney at Law, for the Commission
staff.
OPINIO!i
I. Summary of Decision
The General Telephone Company of California (General) is
authorized to raise its current billing surcharge of ~.83% applicable
to facilities for intrastate access to 8.29% and from 5.38% applicable
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to service other than facilities for intrastate access to 8.84% as
compared to General's requested surcharge of 9.36% and 9.93%
respectively. It is estimated that the increase in the authorized
surcharge will generate additional annual revenues for the test year
1986 of $55.3 million as compared to General's request of about
$68,851,000. The $55.3 million increase herein authorized consists of
the following:
Operational Attrition
$000
$15,529
Depreciation Represcription and
Updates
Financial Attrition
17,525
11,730
Customer-provided Equipment (CPE)
(10,941)
(86)
4,785
16,742
Directory Assistance Charge Plan
Lifeline
ZUM (Zone Unit Message) Extension
Recovery of Payment to TURN (Toward
Utility Rate Normalization)
16
$55,300
(Red Figure)
The fairest means of passing on the changes in revenue
requirement for General is a uniform billing surcharge which applies
to almost all services it provides. This approval spreads the change
broadly on all types of uses and. of course, minimizes the magnitude
of the uniform billing surcharge.
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II. BackRround
Decision (D.) 84-07-108 dated July 18, 1984 was the third
interim decision on the above-mentioned matters. D.84-07-108, based on
General's 1984 test year revenue requirement, authorized an additional
$4.3 million revenue increase for a total rate increase authorized in
the proceeding of $154.8 million. The Commission staff (staff)
proposed a comprehensive methodology for addressing operational
attrition for both test years 1985 and 1986 on the basis that the
staff lacks the resources to process rate cases for both General and
Pacific Bell (Pacific) with 1986 test years. D.84-07-108 provided for
limited hearings in connection with the attrition filings for both
1985 and 1986. The requested rate adjustments were to be based on the
attrition mechanism set forth in Appendix A to the decision modified
to reflect: proposals on methodologies for changes in materials,
rents, and services, changes in rate base, and changes in the
normalized revenues; revenues adjusted to reflect quantifiable changes
attributable to CPE revenues, local directory assistance (DA) call
charging, intraLATA toll revenue, access charge revenue from inter-
LATA carriers, net revenues from extending ZUM, and net revenue change
from one-party flat rate customers converting to measured lifeline
service; traffic expense savings from DA call repression; technical
updating and represcription review of depreciation expense; adjustment
to rate of return for 1986 to reflect increased equity ratio; and the
prudency of General's central office switching equipment (COSE)
expenditures in connection with both No. 2 EAX and GTD-5 COSE to be
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reviewed and addressed by staff in hearings on General's filing for
}986.
Combined hearings for Pacific and General for the test year
1985 attrition adjustment were held in San Francisco in November 1984.
Direct testimony was presented by General, Pacific, American Telephone
and Telegraph-Communications (AT&T-C), Western Burglar & Fire Alarm
Association (WBFA) and staff. D.85-03-042 dated March 6, 1985
authorized General to impose a billing surcharge of 4.83% to generate
additional revenue of $77 million as contrasted to its requested
increase of $106 million. D.85-03-042 also provided, in Appendix B to
the decision, the methodology for developing future attrition filings
to be made by advice letters not later than October 1 preceding the
start of the attrition year, and to be accompanied by all work papers.
General made such a filing for attrition year 1986 on October I, 1985,
and the matter was set for hearing.
Public hearings were held before Administrative Law Judge
(ALJ) N. R. Johnson in Los Angeles on November 18 and 19, 1985, and
the matter was submitted on receipt of voluntary briefs due November
26, 1985. Testimony was presented by General and staff. TURN,
AT&T-C, and the City of Los Angeles (City) participated through cross-
examination of various witnesses and submittal of closing statements.
Briefs were submitted by General and TURN.
Prior to the hearing, TURN made a motion that portions of
the prepared testimony of two of General's witnesses be stricken. The
first part related to the testimony of General's ievenue director,
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John M. Jensik. Witness Jensik presented three alternative surcharge
rate designs for spreading the requested attrition increase. One of these
three alternatives was as set forth in D.85-03-042 whereas the other
two would exempt from the surcharge (1) access services and intraLATA
toll or (2) just access services.. Staff joined in the motion to
strike these latter two alternatives. The motion to strike was
granted on the basis that D.85-03-042 explicitly stated "[f]uture
attrition filings shall be made on the basis of a billing surcharge or
rate design which is identical to that adopted today." (Mimeo. page
82.)
The second part of TURN's motion related to General's
request to adjust the w~rking cash requirement as presented in the
testimony of its budget director, L. G. Manion. Based on a study of
recorded 1984 data, General determined that the working cash
requirement associated with the lag in the receipt of settlement
revenues was $24.7 million higher than the test year level adopted in
D.84-07-108 which translates to an additional revenue requirement of
$4,984,000. TURN's motion was based on its perception that the
working cash requirement be computed as set forth in the 1985
attrition decision, D.85-03-042. Staff also moved that this working
cash adjustment be stricken because, according to the testimony of
staff witness Strahl, the request reflected a "pick and choose a
favorable adjustment" mentality which the Commission elected to
disallow during attrition proceedings. The motions were granted.
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III. Attrition Request
Stipulations
On October 1, 1985, General filed Advice Letter No. 4974
requesting a 1986 test year attrition allowance of $68,851,000.
Staff reviewed General's work papers and prepared its own independent
estimates deriving a comparable figure of $53,023,000. General and
staff again reviewed all pertinent work papers and derived a revenue
requirement of $57,027,000 which both parties stipulated to as
reasonable. As subsequently discussed, this figure was reduced during
the course of the hearing by $1,555,000 to reflect a current telephone
plant index (TPI) of 4.2% instead of the figure of 6.4% used by both
staff and General and by $172,000 to reflect a correction to operator
wage savings, associated with the DA charge program, to yield the 1986
attrition revenue requirement of $55,300,000 set forth in Section I,
Summary of Decision.
Operational Attrition
General computed the operational attrition to be $20,023,000
as contrasted to staff's estimate of $17,084,000. After review,
General stipulated to staff's estimate. Testimony on operational
attrition was presented by General's witness Manion. Cross-
examination by TURN's representative Elliott revealed General had used
a TPI of 6.40% which was, based on a set of numbers provided to General
by Pacific in late 1984 and updated in early 1985. Elliott noted that
D.85-03-042 provided that the TPI is to be weighted according to the
adopted test year construction budget and is to be based on the most
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adopted test year construction budget and is to be based on the most
recently published data. Elliott had admitted as Exhibit 184 an
excerpt from late-filed Exhibit 233 submitted in connection with
Pacific's Application (A.) 85-01-034 for a general rate increase,
showing a 1986 test year TPI of 4.20%. Substituting this figure for
the 6.40% figure used in General's computations reduces the 1986 test
year operational attrition revenue requirement by $1,555,000, yielding
an operational attrition revenue requirement of $15,529,000. This
figure appears to conform to the dictates of D.85-03-042.
Consequently, we will adopt it as reasonable for this proceeding.
Depreciation Represcription and Updates
On June 5, 1985, General applied for a technical update of
depreciation rates for all telephone plant. The request was reviewed
by the staff's depreciation group and the proposed depreciation rates
were approved. Notices of the changes were sent to all interested
parties on September 13, 1985, and the record does not indicate the
filing of comments, statements, or protests. Staff is of the
opinion that the amount of $17.525,000, as requested in the technical
update, is fair and reasonable and should be allowed in the attrition
filing. We agree and will adopt this figure for this proceeding.
Financial Attrition
In D.84-07-108, we noted that the annual operational
attrition review wherein we can directly address factors affecting
revenues mitigates any need to reconsider the cost of equity.
Consequently, we adopted a return on common equity of 15.50% to apply
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over time irrespective of short-term fluctuations in debt costs or
economic conditions. We .further noted that our failure to adjust the
rate of return to reflect increased equity ratios could be a
disincentive to General's parent and sole stockholder to infuse
equity. Consequently, we allowed the rate of return to apply in test
year 1986 to be adjusted to reflect a maximum equity ratio of 47.4% if
General's 1986 attrition filing is convincing that it will achieve
such a higher equity ratio in 1986. Staff review indicated that as of
August 31, 1985, General had increased its common equity ratio to
approximately 48.2% and projections are that the ratio will increase
further through 1986. Therefore, staff believes that, according to
D.84-07-108, it is appropriate to revise General's authorized rate of
return for test year 1986 to reflect the maximum equity ratio of 47.4%
set forth in D.84-07-108. General and staff both used a capital
structure of 44.67% long-term debt at a cost of 11.00%, 3.0% short-
term debt at a cost of 10.00%, 5.0% preferred stock at a cost of
7.77%, and 47.4% common equity at a cost of 15.50% to yield a rate of
return of 12.95%. TURN's Elliott noted that both short-term debt and
preferred stock capital structure percentages were less than that
established in D.84-07-108, resulting in a lower rate of return than
if the increase in the common equity ratio were balanced solely by a
corresponding decrease in the percentage of long-term debt. The
capital structures and weighted cost from D.84-07-108, as computed by
General and staff, and computed if the increase in equity balanced a
decrease in long-term debt are as follows:
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Ratio
Cost
Factor
Weighted
Cost
General's
and
Staff's
Ratio
Cost
Factor
Ratio
Cost
Factor
3.0
4.91%
0.30
44.0%
4.84%
Short-term Debt
48.1% 11. 00%
3.2 10.00
5.29%
0.32
44.6%
Long-term Debt
3.2
0.32
0.42
Common Equity
5.4 7.77
43.3 15.50
0.42
6.80
5.0
47.4
0.39
7.35
5.4
47.4
7.35
Preferred Stock
100.0%
12.73%
100.0
12.95% 100.0% 12.93%
At 12.95% rate of return, the financial attrition revenue requirement
is approximately $11.730 million and at 12.93% is approximately
$10.617 million, a difference of approximately $1.113 million. It is
TURN's position that it is entirely inappropriate for General to
utilize the capital structure it did to try to get an extra $1.1
million beyond the figure that could be fairly attributed to the
decision. In response to cross-examination questions by TURN's
Elliott, staff witness Mowrey stated that:
(1) 0.84-07-108 did not
state how the movement in the capital ratios would take place; (2) a
review of General's capitalization showed that all of the ratios,
long-term debt, short-term debt, and preferred stock have moved from
what was adopted in that decision; (3) the actual preferred stock
ratio is lower than reflected in his computations; and (4) it is his
opinion that the balancing of the movement in common equity as
reflected in General's and his capital structures that spread the
changes evenly is a reasonable methodology to reflect the increase in
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changes evenly is a reasonable methodology to reflect the increase in
common equity. We are persuaded that, the capital structure sponsored
by General and staff is reasonable and will, therefore, allow
$11,730,000 for the 1986 year financial attrition revenue requirement.
Directorv Assistance Charge Plan
In D.84-07-108, we adopted for General the same local DA
charge plan approved for Pacific, which allows a free call monthly
allowance of five for residential and two for business customers with
certain exemptions, i.e. such as for customers with impairments
limiting their use of directories. It was estimated that in 1985 the
revenue and expense savings would be at least $7.7 million and in 1986
would be $16.6 million.
The incremental revenue and expense savings were to be
reviewed in the attrition offset filings for 1985. However, at the
1985 attrition hearings, both General and staff agreed that the net
effect of the DA charge plan would be a reductioQ in attrition year
revenue requirement of only $1.3 million.
In D.85-04-03, we stated:
"Originally, General estimated it could put its
entire system under the DA charge plan by July
1985, which was in large part the premise we
relied on to tentatively compute the 1985
revenue requirement effect, but General notes
its proposed timetable presumed it would
receive authorization to move ahead with DA
charging at the start of 1984, not halfway
through the year. It did not order the
necessary equipment or start gearing up for DA
charging until it received our authorization in
July 1984." (Mimeo. page 51.)
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This delay in the implementation of the DA charge plan coupled with a
net reduction in calling volume of 25% instead of an anticipated 35%
and an average work time of 23 seconds instead of 31 seconds per call
resulted in the substantially decreased revenue requirement reduction
of $1.3 million instead of $7.4 million. In D.85-04-03, we also
stated: "Presumably General could have had some provisional
contracts in place with equipment vendors so that if and when some
form of DA charge plan was approved it could have reacted quickly."
(Mimeo. pages 52, 53.) Because of this lack of provisional contracts
and in consideration of the above-discussed revised estimates, we
reduced General's 1985 attrition revenue requirement by $2.3 million
rather than the $1.3 million proposed by General and staff. For the
1986 attrition year, General originally estimated DA charge plan
savings to be $10,115,000, but stipulated to the staff's estimate of
$10,769,000. The operator savings estimate methodology used by
General's witness Poiry was questioned by TURN and the resulting
further review by General indicated the savings should be increased
an additional $172,000 resulting in the negative revenue requirement
for the DA charge plan of $10,941,000 set forth in Section I, Summary
of Decision.
The estimate of the DA charge plan savings is based on the
implementation of the Directory Assistance System/Voice (DAS/V)
computer program. The four DAS/V units are scheduled for operation,
one each, in January, February, April, and June. According to the
record, these units will not be in service for the full year 1986 due
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to start-up delays relating to difficulties in interfacing the Volt
Delta directory assistance system with the Rockwe.ll Collins automatic
calling system. Witness Poiry testified that General is the first in
attempting to get an interface of these two systems, and it has been
in the implementation mode since September. It is TURN's position
that the DA charge plan savings should be computed as though the four
DAS/V units were in operation for the entire year 1986 on the basis
that in the 1985 attrition year decision this Commission chided
General for moving too slowly and stopping its schedule for
implementing these procedures that would save ratepayers money and
further stoppage should not be permitted. In its brief, TURN computed
the DA charge plan savings with a full year implementation of the
DAS/Vunits to be $350,000.
In his testimony, staff witness Shantz testified that the
above implementation decision is optimistic but that, to provide
General an incentive to impute the cost savings and to pro teet the
ratepayers, he computed the savings as though the schedule was met.
In response to cross-examination questions by TURN, this witness
stated that he did not believe it proper to impute savings on a full-
year basis because General had already been penalized $1 million for
failure to implement the plan fully. We will not compute the savings
as though the four DAS/V units were on line for the full 1986
attrition year on the basis that, unlike the 1985 attrition year
situation, it appears the delay in the timely implementation of the
system is not within the control of General.
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Universal Lifeline Telephone
Service (ULTS)
General's estimate of the change in 1986 revenue requirement
associated with ULTS is an increase of $0.284 million as compared with
staff's estimate of a $0.86 million decrease. According to the
testimony of staff witness Shantz, the difference is due to
mathematical errors in General's computations and its failure to
consider the increase in customer billing associated with local usage
which results from the conversion of a one-party flat rate residence
customer to a one-party measured rate residence ULTS service. General
stipulated to the staff figure.
According to the record, General's and the staff's estimates
reflect approximately 100,000 ULTS customers by mid-1986 up from
87,206 at mid-1985. TURN questions the propriety of forecasting a
substantial increase for the 1986 attrition year in view of the
recorded decline from roughly 100,000 in December 1984 to the above
87,206 at the end of June 1985. In its brief, TURN argues that
because of the estimate trending opposite of recorded data, a larger
revenue reduction should be reflected in our adopted figures because
there is no indication of a marketing effort to realize the higher
number of ULTS customers. In this respect, staff witness Shantz
testified that his estimates were more or less supported by Pacific's
estimates of substantially higher percentages of ULTS customers. The
primary difference, according to Shantz, is that Pacific has actively
marketed its residence measured service more vigorously and for a
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longer period than General. We will adopt the staff's estimate as
reasonable for this proceeding.
ZUM Extension
Testimony presented on behalf of General by its business
relations director, Glenn G. Hascall, indicated the 1986 revenue
requirement change associated with the change in IntraLATA Toll, ZUM,
and Extended Area Service (EAS) settlement revenues attributed to the
ZUM extension and associated exchange reapportionment to be $4.785
million as submitted by Pacific (with General's concurrence) in
response to Ordering Paragraph l6.a. of D.84-06-111 on Pacific's
A.85-01-084. Staff adopted this figure since its analysis of
Pacific's filing will not be completed until about December 16, 1985,
noting that the revenue effects of the exch~nge boundary revisions and
ZUM expansion authorized in D.84-06-l11 are at issue in the
A.85-01-034 proceeding which is consolidated with Order Instituting
Investigation (011) 85-03-078 in which General is a respondent.
According to staff, any necessary adjustments to the $4.785 million
increase in 1986 revenue requirement utilized for establishing
General's 1986 attrition related change in revenue requirement can be
reflected in the interim and/or final rates authorized for General in
that proceeding. This position appears reasonable and we will adopt
the 1986 attrition revenue requirement of $4.785 million for the
effects of ZUM expansion.
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CPE
Testimony on the 1986 test year attrition revenue
requirement associated with CPE was presented on behalf of General by
its revenues director, John M. Jensik, and project supervisor in the
telecommunications results of operations branch of the Public Staff
Division, Harry Strahl. According to the testimony ~f Jensik, it is
estimated that the continued decline in General's in-service CPE
quantities will result in an annual revenue loss of $22.8 million in
1986 with expense savings of $3.2 million due to reduced CPE
maintenance costs, creating a 1986 attrition year revenue requirement
of $19.6 million. Staff estimated an expense reduction of $8,009,000
for residential phones, $335,000 for key systems, and $1,754,000
reduction for PBX units, a total of about $10.1 million which deducted
from the estimated revenue decrease of $22.8 million left a revenue
requirement of approximately $12.7 million. The staff $8,009,000
expense reduction was based on a loaded 0.75 hours per phone per year
times $32.07 per hour times 333,000 phones. General accepted the
labor rate and the hours per phone, but suggested that only half the
phones go bad and require corrective action. Witness Strahl was
persuaded that such an approach was reasonable and reduced his
residential phone saving by one-half, resulting in a 1986 attrition
revenue requirement of $16,742,000 to which General stipulated. We
will adopt this amount as reasonable for this proceeding.
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Recovery of Payment to TURN
Included in its attrition request is the amount of $16,407
which General has been required by this Commission to pay to TURN as
a result of its participation in General's 1984 general rate case. We
will include that amount in General's 1986 attrition revenue
.
requirement.
Central Office Switching
Equipment Penalty
Ordering Paragraph 21.h. of D.84-07-108 includes for
consideration at the hearing on General's 1986 attrition revenue
requirement the prudency of General's COSE expenditures in connection
with both No.2 EAX and GTD-5 switches. In D.84-07-108, we stated:
"It is apparent, both in view of Strahl's testimony
and that of Monson (addressing the progress of the
COSE conversion program), that there is serious
doubt about the prudency of General's expenditures
in connection with installing both No. 2 EAX and
GTD-5 COSE. Given this evidence we cannot
conclude that General has met its burden of proof
to justify the reasonableness of test year plant
expenditures in connection with the COSE
conversion program. Given this evidentiary
deficiency we cannot adopt General's net test year
plant costs for the COSE conversion program,
totaling $305 million. Our interim solution is to
allow General a return on 90% of capitalized test
year expenditures, after retirements. The $305
million will stay in rate base until further
order, but a return will not be recognized on
$30.5 million, which results in a reduction in
intrastate test year revenue requirement of $6
million. It should be noted the net loss to
General will be about half of that amount as it
will not pay taxes on that gross revenue.
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"Our staff should thoroughly investigate this
matter and we will review it further in connection
with General's attrition filing for 1986, when we
will decide the extent of any permanent ratemaking
adjustment to rate base." (Mimeo. page 99.)
Testimony on this subject was presented on behalf of General
by its network planning director, James W. Miller, who supported the
elimination of the above $6 million revenue requirement penalty. He
presented detailed information in support of General's decision for
expenditures associated with the installation of No. 2 EAX switches.
This information was required as a filing by Ordering Paragraph 7 of
D.84-07-108. This witness testified that:
1. At the time the No.2 EAX was selected, it was
the only large proven switch type available to
General to meet its modernization program.
2. Other switch types were considered but
rejected because they were too small, were
still under development, and not yet proven or
were not available for General's typical plain
old telephone service and Centrex applications.
3. It was General's opinion that in order to
avoid the risk of service degradation which
could result from an unproven switching
system, it was prudent to defer investing in
such switching.
4. At the time the decision to purchase the No. 2
EAX switch was made, there was no proven,
large' Class 5 digital or analog swi tch
available to General.
5. General has 182 central offices, nine of which
have colocated No. 2 EAX and digital GTD-5
switching equipment.
6. Colocating step-by-step and No. 2 EAX
switching was a matter of necessity.
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7. The advantages of the colocated No.2 EAX and
digital strategy adopted by General more than
offset the costs associated with colocation
such as intermachine-intraoffice trunking.
8. The decisions associated with electronic and
digital investments were sound and based on
good business judgment of selecting the best
of the alternatives available.
Staff witness Strahl testified that while disagreeing with
~ General's Miller's reasons for its actions, he agrees with General
that the penalty be removed on the basis that the Commission, by not
compelling General to adopt competitive bidding procedures for CaSE
prior to April 1985, has given General the opportunity to limit its
selection of options for CaSE prior to that date. He further
testified that, in his opinion, it makes little sense to penalize
General for actions wherein it exercises its allowed prerogatives. _In
response to cross-examination questions by TURN, he stated that in the
1978-79 time frame, both the ITT 1210 and the Northern Telecom DMS-I00
were viable alternatives, but that General was acting within
reasonable guidelines in making its selection.
TURN argues that the CaSE penalty in D.84-07-108 put the
burden of proof squarely on General and that General did not meet its
burden on questions about prudency of investment. Furthermore,
according to TURN, General's statements that comparative studies were
not undertaken because there were no alternatives are incorrect
because there were alternatives available. Under these circumstances,
TURN believes it appropriate to retain the $6 million CaSE penalty.
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As can be seen from the above decision quote our primary
motivation for the application of the penalty was a deficiency of
evidence justifying General's expenditures in connection with
installing both No. 2 EAX and GTD-S COSE.
According to the record,
colocating the No. 2 EAX switch, first with existing step-by-step
equipment and then, when available, with digital switches, was a
matter of necessity to meet the demands of a rapidly increasing
customer base. The only alternatives available to General appear to
have been to substantially increase its step-by-step switching or
install, in General's mind, unproven equipment which had the
possibility of resulting in service degradation rather than service
improvement.
It is obvious that General elected not to gamble and
adopted the conservative approach. Under the circumstances, such
action does not ap~ar unreasonable and we will, accordingly, remove
the $6 million penalty by permitting all the test year plant costs for
the COSE conversion program in rate base.
IV. Rate Design
Testimony on the appropriate customer billing surcharge with
which to recover the 1986 attrition year revenue requirement was
presented by General's witness Jensik and staff's witness Shantz.
Witness Jensik presented two alternative designs to that adopted by
D.8S-03-042 to illustrate the effect of removing the surcharge from
(1) access services and intraLATA toll or (2) just access services
which, General believes, are services vulnerable to competition and
threat of bypass. D.8S-03-042, however, was quite specific and
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stated: "Future attrition filings shall be made on the basis of a
billing surcharge or rate design which is identical to that adopted
today." (Mimeo. page 82.) On the basis of such a specific
requirement, TURN moved that testimony on alternative rate design be
stricken. The presiding ALJ correctly granted the motion to strike.
Staff estimated 1986 customer billing base, stipulated to by
General, is $1,596,898,000 developed on a tops-down basis. Using this
as a devisor applied to staff's attrition requirement of $53,023,000
yields an additional incremental surcharge of 3.32%. As previously
stated, our adopted 1986 attrition revenue requirement is $55,300,000.
Substituting this for the above $53,023,000 in the billing surcharge
calculation results in an additional surcharge of 3.46%. The
following tabulation sets forth the present surcharges, General's
proposed surcharges, staff's proposed surcharges, and the adopted
surcharges applied as set forth in Appendix C of D.85-03-042:
Present
Surcharge
General's
Proposal
Staff's
Proposal
Adopted
Applicable to Facilities
for Intrastate Access
4.83%
9.36%
8.15%
8.29%
Applicable to Service
other than Facilities
for Intrastate Access
5.38
9.93
8.70
8.84
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v. Attrition Policy
In connection with the joint Pacific and General 1985
attrition allowance hearings, we addressed the question as to whether
or not we should have attrition allowances.
At that proceeding, the
cities of San Diego and Los Angeles and the City and County of San
Francisco recommended that no attrition allowance be adopted for
either Pacific or General on the basis that economic conditions were
vastly imp~oved negating the need for such an increase; TURN was
opposed to such an attrition allowance, stating that the
telecommunications industry is in such a state of flux that trying to
devise and apply any reasonable attrition methodology is fraught from
the start with too much uncertainty; and WBFA recommended that any
attrition increases be limited to the percentage increase in the
Consumer Price Index.
In D.85-~3-042 on this matter, we stated:
"While we sympathize with the points of the Cities
and TURN, and we recognize our task in formulating
an attrition mechanism is all the more difficult
given the fast breaking changes in this industry,
we believe on balance that our recent decision to
have a test year followed by a two-year period
before further rate relief has essentially pre-
cluded having no attrition year ratemaking."
(Mimeo. page 5.)
In that decision, we also differentiated between a general
rate proceeding and an attrition proceeding as follows:
"While we are estimating a future results of
operations in an attrition mechanism, just as in a
general rate proceeding, there are some
distinctions between the estimating or forecasting
in the two procedures. We will always lack the
detailed analysis in estimating attrition factors
which ordinarily underlies our adopted estimates
in general rate proceedings. We simply lack the
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personnel and logistical resources to annually do
such an exhaustive investigation. This means
attrition estimating is necessarily somewhat
broad-brush or scatter-gun in comparison to that
in general rate proceedings. Given that inherent
difference we conclude that any attrition increase
must be based on conservative estimates. Only by
this approach can be both protect ratepayers and
ensure utility management retains an incentive to
innovate and minimize costs." (Mimeo. page 7.)
Such reasoning was the cornerstone of our adopted attrition revenue
requirement methodology detailed for General and Pacific in Appendix B
of D.85-03-042.
In its closing statement on this proceeding, City urged the
Commission to deny in its entirety the attrition increase requested by
General on the following basis:
1. Under the adopted attrition revenue
requirement methodology, no consideration is
given to General's current earnings on equity,
which, computed on the basis of Moody's
semiweekly public utility reports, exceeds the
authorized rate of return.
2. An increase in the allowable rate of return to
reflect an increased equity ratio flies in the
face of the universally recognized principle
that financial risk decreases as the equity
ratio increases.
3. The Commission has repeatedly held that the
prime rate of interest is an important factor
in the determination of allowable return on
equity and such interest rate has decreased
350 basis points since D.84-07-108 issued,
mandating a decrease rather than an increase
in the allowable return on equity.
4. The estimate of the embedded cost of debt
leading to the establishment of the rate of
return authorized by D.84-07-108 was
overstated, supporting a reduction, not an
increase, in the allowable rate of return.
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5. General has failed to meet the burden of proof
that any increase in rates for attrition is
now warranted.
Data on General's current earnings were properly excluded
from this proceeding by the presiding ALJ. This is an attrition
proceeding, not a general rate proceeding. Allowing the data on
General's current earnings as evidence in this proceeding would have
broadened the proceeding into a general rate case, burdening our staff
beyond its capability to handle in conjunction with Pacific's current
rate proceeding. Furthermore, as noted by staff witness Strahl, we
have an internal mechanism which tracks the company's rate of return.
Should the rate of return exceed the last authorized rate of return by
25 or 30 basis points, an appropriate memorandum would be issued
recommending that the Commission issue an 011 into the company's
earnings and operations. No such memorandu~ was forthcoming:
consequently, it can be reasonably concluded that General's current
earnings are not excessive.
The matter of the inverse relationship of equity ratio to
financial risk was considered in General's general rate case. In
D.84-07-108, we stated:
"Given that review in connection with operational
attrition we can directly address factors
affecting revenues. This mitigates any need to
reconsider the cost of equity. Finally, we
suspect at least one out of the four economic
forecasting entities will have a more dismal debt
cost forecast than the others, and besides we are
adopting today a return or. equity to apply over
time, irrespective of short-term fluctuations in
debt costs or economic conditions. Accordingly,
we will not use any forecast in 1985 of economic
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conditions in 1986 as a basis for triggering a
reconsideration of the cost of capital.
"Our adopted test year capital structure is that
estimated at the end of 1984, so by its very
nature it is an average capital structure over
1984-85. Thus, there is no need to readjust
General's rate of return based on any additional
equity infusion expected in 1985; that has already
been recognized in adopting today's authorized
rate of return. But 1986 is a different matter.
While we think Mowrey is technically correct that
all things being equal a higher equity ratio in
1986 means less overall risk, which O'Rourke
technically concedes, we are not convinced, as
O'Rourke points out, that debt investors will
necessarily view things with the same level of
sophistication. This is particularly true as we
are for the first time requiring two attrition
years. We are hopeful that General will achieve
the 47.4% equity ratio in 1986 which O'Rourke
projects, and not adjusting rate of return to
reflect such an equity ratio could be a
disincentive to General's parent and sole
stockholder to infuse equity. Thus, we will allow
the rate of return to apply in 1986 to be adjusted
to reflect a maximum equity ratio of 47.4% if
General's 1986 attrition filing is convincing that
it will achieve such a higher equity ratio in
1986." (Mimeo. page 108.)
In the course of this proceeding, the ALJ ruled that
information regarding certain financial indicators would not be
admitted into evidence. We agree that we should not update financial
forecasts, as ordered in D.84-07-108. However, we believe it
appropriate at this time to update General's embedded cost of debt and
adjust attrition year revenue requirement if necessary. Accordingly,
we will order this proceeding to remain open in order to review this
matter in hearings to take place in January. General's attrition year
increase will be authorized subject to refund pending the resolution
of this matter.
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VI. Findings and Conclusions
Findings of Fact
1. An allowance of $15,529,000 for test year 1986 operational
attrition is reasonable.
2. An allowance of $17,525,000 for test year 1986 depreciation
represcription and updates is reasonable.
3. An allowance of $11,730,000 for test year 1986 financial
attrition is reasonable.
4. An allowance of a negative $10,941,000 for test year 1986 DA
charge plan is reasonable and provides an incentive to impute the
costs savings as expeditiously as possible.
5. An allowance of a negative $86,000 for test year 1986 ULTS is
reasonable.
6. An allowance of $4,785,000 to test year 1986 2UM extension
is reasonable.
7. An allowance of $16,742,000 for test year 1986 CPE lost
revenue is reasonable.
8. An allowance for the recovery of payment to TURN of $16,000
for test year 1986 is reasonable.
9. General adopted a conservative approach in connection with
its expenditures in connection with installing both No. 2 EAX and
GTD-5 COSE.
10. The 1986 customer billing base to be used for the
computation of the 1986 attrition year revenue requirement surcharge
should be $1,596,898,000.
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11. The additional surcharge to meet our adopted 1986 attrition
year revenue requirement increase of $55,300,000 should be 3.46%.
12. The Commission lacks the personnel and logistical resources
to annually do the exhaustive investigation required to provide the
detailed analysis in estimating attrition factors which ordinarily
underlies our adopted estimates in general rate proceedings.
13. Allowing data on General's current earnings as evidence in
this proceeding would have broadened the matter into a general rate
proceeding, burdening our staff beyond its capability to handle in
conjunction with Pacific's current rate proceeding.
14. To effect the changes on January 1, 1986 the following order
should be effective today.
Conclusions of Law
1. Striking the testimony of General's witness Jensik relating
to alternative surcharge design for spreading the request attrition
increase not set forth in D.85-03-042 was proper.
2. Striking that portion of the testimony of General's witness
Manion relating to an adjustment to working cash of $24.7 million
resulting in an increase in the 1986 test year attrition revenue
requirement of $4.984 million was proper.
3. The $6 million revenue requirement penalty imposed by
D.84-07-108 in connection with General's expenditures for No.2 EAX
and GDT-5 CaSE should be rescinded.
4. The billing surcharge adopted in Appendix A is just and
reasonable.
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5. This proceeding should remain open to review General's
embedded cost of debt.
6. General's attrition year increase should be authorized
subject to refund pending resolution of the effect of General's
embedded cost of debt on its attrition year revenue requirement.
ORD~!
IT IS ORDERED that:
1. General Telephone Company of California (General) is
authorized to file the revised schedules attached to this order as
Appendix A and to concurrently cancel its present schedules for such
service. This filing shall comply with General Order Series 96. The
effective date of the revised schedules shall be January 1, 1986 or 5
days after filing. whichever is later. The revised schedules shall
apply only to service rendered on and after their effective date.
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2. Revised rates shall be subject to refund pending review of
General's cost of embedded debt and corresponding adjustments to
General's attrition year revenue requirement. Hearings on this matter
shall be scheduled to take place in January 1986.
This order is effective today.
Dated December 18, 1985, at San Francisco, California.
DONALD VIAL
President
VICTOR CALVO
PRISCILLA C. GREW
WILLIAM T. BAGLEY
FREDERICK R. DUD A
Commissioners
I abstain in part and will file
a written dissent in part.
/s/ PRISCILLA C. GREW
Commissioner
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APPENDIX A
Page 1 of 2
SCHEDULE CAL. P.U.C. NO. A-38
BILLING ADJUSTMENT
APPLICABILITY
Applicable to intrastate billing on each customer's and/or carrier's bill for
services rendered on or after January 1, 1986, as authorized by the Public
Utilities Commission. General shall not backbill any customer in the event it
cannot because of billing limitations impose the revised billing adjustment on
January 1, 1986.
TERRITORY
Within the exchange areas of all exchanges as said areas are defined on maps
filed as part of the tariff schedules.
RATES
Monthly Percentage
Adjustment Factor
(See Special Condition 1)
8.29%
Adjustment Factor
(See Special Condition 2)
8.84%
SPECIAL CONDITIONS
1. The monthly percentage factor of 8.29 percent applies to all services
provided under Tariff Schedule C-1, Facilities for Intrastate Access.
2. The monthly percentage factor of 8.84 percent applies to all recurring and
nonrecurring rates and charges for service or equipment provided under all
of the Utility's Tariff Schedules except the following:
a. A-1 - Semipublic Message Rate - RATES 7.a.
b. A-21 - Public Telephone Service - ALL
c. A-38a - Surcharge to Fund Public Utilities Commission Reimbursement
d. B-1 - Message Toll Telephone Service - Coin-Sent Paid
e. L-2 - Cellular Radio Telephone Service - All
f. C-1 - Facilities for Intrastate Access - All
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APPENDIX A
Page 2 of 2
SCHEDULE CAL. 'P.U.C. NO. A-3t
BIU.ING ADJUSn1EIIT
SPECIAL CONDITIONS
3. The billing adjustment amount on each bill shall be designated
"Billing Surcharge".
4. The monthly percentage factor applies to each customer's/carrier's bill for
the total recurring and nonrecurring rates except those items excluded
under Special Conditions 1 and 2, above, exclusive of federal and local
excise taxes.
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D .85-12-001
PRISCILLA C. GRElv, Commissioner, abstaining in part and dissenting in part:
Due to reportable financial interest in two interLATA carriers, I abstain
from the portions of this decision dealing with access charge rate design on
pages 19 and 20, and from Conclusions of Law 1 and 4.
I dissent from the majority's decision to rescind the $6 million revenue
requirement penalty imposed by D.84-07-103. I agree with TUm that General did
not meet its burden of proof as required by the Commission on this is&~e .
Isl priscilla C. Grew
PRISCILLA C. GRE'Ii, Commissioner
December 18, 1985
San Francisco, California